China Agrees to Accommodate Pakistan’s Concerns on FTA

Ivy

2018-02-13

After intense negotiations, China on 8th Feb agreed to accommodate the demands of Pakistani exporters in the amended Free Trade Agreement (FTA) which is expected to be signed in March, a press release issued by the Ministry of Commerce said.

The demands and concerns of local exporters were shared during the 9th round of two-day negotiations on China-Pakistan Free Trade Agreement which began on Wednesday.

The Pakistani delegation was led by Secretary Commerce Mohammad Younus Dagha while the Chinese side was headed by Vice Minister for Commerce Wang Shouwen.

The demands included provision for tariff concessions equivalent to Asean countries.

Mr Dagha suggested incorporating clauses for safeguarding Pakistani industries and the economy from any undue pressure on the balance of payments position, the release said.

Various industries and chambers provided input to the commerce ministry during pre-negotiation consultations for protection of the local industry from Chinese imports by disallowing tariff concessions on several products.

The negotiations to finalise the FTA with China began in 2012 but dragged on since then. Industry leaders have complained along the way that the FTA, originally signed in 2006, has left them at a disadvantage against their Chinese competitors. Between 2012 and 2017, for example, Pakistan’s trade deficit with China tripled, going from $4 billion to $12.7bn.

Various domestic business groups have complained that products in which Pakistan enjoys a competitive advantage are not covered by the Chinese side, which enjoys far wider access to Pakistan’s markets.

China is now the largest source of Pakistan’s imports, which stand at 29pc of total imports. A recent paper released by the State Bank of Pakistan states that more than half of the country’s imports of electrical equipment and machinery come from China.

Under the 2006 FTA, China granted concessions on 7,550 tariff lines to Pakistan of which 35pc of the products covered by those lines were zero rated, according to the SBP study. “However, 15pc of the products were given no concession, which include fish, cotton, paper, plastic and textile items.”

Pakistan gave concessions on 6,803 tariff lines to China in that same agreement, where electric and electronic products, machinery and chemicals and other raw materials were zero rated. “Pakistan excluded a list of products (92 tariff lines), which mainly include alcohol, drugs, arms and ammunitions”, the State Bank report says.

It attributes the surge in imports from China mainly to growing imports of machinery as well as the diversion of imports from other trading partners.

A similar study by the Pakistan Business Council, an advocacy group consisting of the largest manufacturing houses of the country, claims that “China actually has the ability to absorb nearly all of Pakistan’s exports” since the indicative potential of exports is slightly above $20bn. “[I]t is strongly recommended that Pakistan’s top-performing exports to China should be added to the tariff concession/elimination lists, while Pakistan should also aim to divert more high-potential exports towards China,” the report, which was released in November 2016, says.

“Those imports which are harming local industries and manufacturers should be monitored carefully, and added to Pakistan’s protected list.”

It also calls for reform of data reporting standards in both countries, noting large discrepancies in the bilateral trade data reported by both countries. In the case of Chinese imports into Pakistan, for example, it says the discrepancy is as large as $5.5bn, “due to possible under-invoicing, which would mean that severe revenue losses and tax evasion are taking place.”